Drip Portfolio Report
Wednesday, May 13, 1998
by Dale Wettlaufer (DaleW@fool.com)


Alexandria, VA (May 13, 1998) -- Before we get to the number six member of the banking group, someone wrote me the other day and said "get on with the selections!" I'll repeat that we're not in a rush to make selections because this is a DRIP portfolio and because most of the people asked that we take it slow. The person also said "thanks for the balance sheet, but I can read that myself." What I'm providing below and what we'll deal with more next week as we apply more of theory to the practical numbers that I've provided is more than just a balance sheet. Balance sheet data is less than 10% of what you find below. The rest of the data is an investigation of how well the company uses the resources at its disposal. The balance sheet is only the starting point for a bank. How it makes its money, the quality of the earnings stream it generates, the quality of its loan underwriting, and its capital allocation choices are all extremely important data that must be considered when making an investment in a bank or financial services company.

For anyone that wants to move forward more quickly with the analysis, we published an Industry Snapshot on mid-size banks last week. A couple banks in our focus group appeared in that analysis, if you're interested. Furthermore, the people at FoolMart said that it's alright for me to offer Drip Port readers a 20% discount on this issue of the Snapshot. If that interests you, click here for more details. Crassly commercial? You bet! (It's only about $5 for this 13-page in-depth issue, so we're keeping our guilt well under control.)

Wow, we're on number six today. This is one of the most unique regional commercial and retail banks around. BankBoston (NYSE: BKB) is the product of the 1996 merger of commercial and retail lender Bank of Boston with retail banking innovator BayBank. One of the interesting features of the company is its 80 years of experience in Latin America, where it's a highly recognizable commercial banking name. BankBoston now has a presence on five continents, offering excellent growth and diversity to go along with just regional banking exposure.

Here are the facts for the record and for comparison (print it to compare it to our past banks, side by side):

Price/Valuation

Share Price.....$107 1/2
Market Cap.....$15,893.02
Enterprise Value.....$5,666.02
Price/Book.....3.31
Price/ Tangible Book.....3.55
BVPS.....$32.51
Price/Assets.....22.25%
Price/Net Loans.....38.08%
Price/Deposits.....34.72%
Price/Tangible Assets.....22.35%
EV/Tangible Assets.....7.97%
Price/Revenues.....3.75
P/E.....17.97
Amortization-Adjusted P/E.....17.41
Discount/Premium to Group.....-9.5%
EPS.....$5.98
Cash EPS.....$6.17
Diluted Sharecount.....147.84
1998 EPS Estimate.....$6.37
1999 EPS Estimate.....$7.09
Multiple on 1998 Est......16.88
Multiple on 1999 Est......15.16
Amort-Adjusted Multiple on 1999.....14.77
Discount/Premium to Group.....-1.6%

Capital Productivity/Efficiency

Asset Turnover2.....6.25%
Asset Turnover.....6.22%
ROE2.....18.88%
ROE.....18.30%
Amortization Adjusted ROE.....20.31%
ROA.....1.34%
ROA2.....1.347%
Net margin2.....21.55%
Net Margin.....20.89%
Efficiency Ratio.....56.98%
Interest Income/AEA.....7.71%
Interest Expense/AEA.....4.15%
Net Interest Margin.....3.56%
Net Share Buybacks (Including preferred).....$983.4
Dividends on Common.....$308.3
Retention Rate.....66.22%
Payout Ratio on AAEarnings.....33.78%
Internal Capital Generation Rate.....13.45%
Owners' Yield.....8.13%

Balance Sheet

Cash & Nonearning Assets.....$11,252.0
Cash & Nonearning Last Year.....$9,097.0
Long Term Debt.....$1,025.0
Shareholder's Equity.....$4,807.0
Last Year Equity.....$4,861.0
Total Assets.....$71,428.0
Last Year Assets.....$64,780.0
Total Liabilities.....$66,621.0
Goodwill.....$334.0
Last Year's Goodwill.....$347.7
Gross Loans.....$42,461.0
Loan Loss Reserves.....$729.00
Loan Loss Reserves %.....1.72%

Leverage

Equity/Tangible Assets.....6.76%
Average Equity/Average Assets.....7.10%
Average Equity/Average Assets (Tangible).....6.63%
Assets/Equity.....14.09
Avg. Assets/Avg. Equity (Tangible).....15.08
Loans to Deposits.....92.76%
LT Debt/Equity.....21.32%
Leveraged Capital Ratio.....7.30%
Tier 1 Capital Ratio.....7.90%
Total Risk Based Capital Ratio.....12.30%

Income Statement

Revenues.....$4,234.70
Interest Income (TTM).....$5,226.4
Interest Expense (TTM).....$2,814.0
Net Interest Income.....$2,412.4
Provision for Loan Losses.....$300.00
Noninterest Income (TTM).....$1,822.3
Noninterest Expense (TTM).....$2,440.80
Net Income for Common (TTM).....$884.63
Amortization Adjusted Earnings.....$912.63
Noninterest income/interest income.....34.9%
Noninterest income/revenues.....43.03%
Noninterest income/NII.....75.54%
Amort. Adjusted Net/Revs......21.55%
Amortization of Goodwill.....$28.00

Credit Quality

Nonperforming Loans.....$327.00
Nonperforming Assets.....$369.0
Charge Offs.....$427.00
Net Charge Offs.....$341.80
Nonperforming Assets Ratio.....0.87%
Reserves/Nonperforming Loans.....197.56%
Months Charge-Offs in Reserves.....20.5
Loan Loss Provision/Net Charge Offs.....87.77%

Deposits

Deposits.....$45,774.0
Noninterest bearing deposits.....$8,616.0
Noninterest deposits/deposits.....18.82%
Deposits/Liabilities.....68.71%
Core Deposit Percentage

Risk-Based Capital Productivity

ROE2*Tier1.....14.73
Leverage*Turns*Net Margin2.....1.15

FoolWatch -- It's what's going on at the Fool today.


TODAY'S NUMBERS

Stock Close Change CPB $53 9/16 + 1/4 INTC $85 1/8 + 9/16 JNJ $71 15/16 +1 1/16
Day Month Year History Drip 0.58% 2.77% 11.46% (5.08%) S&P 500 0.27% 0.64% 15.30% 17.61% Nasdaq 0.32% (0.12%) 18.84% 17.09% Last Rec'd Total # Security In At Current 04/13/98 1.000 CPB $53.690 $53.750 04/01/98 9.015 INTC $80.417 $84.813 04/07/98 4.099 JNJ $68.952 $72.438 Last Rec'd Total# Security In At Value Change 04/13/98 1.000 CPB $53.69 $53.75 $0.06 04/01/98 9.015 INTC $724.9 $764.56 $39.62 04/07/98 4.099 JNJ $282.64 $296.92 $14.29 Base: $1500.00 Cash: $386.10** Total: $1501.33

The Drip Portfolio has been divided into 63.266 shares with an average purchase price of $23.710 per share.

The portfolio began with $500 on July 28, 1997, adds $100 on the 1st of every month, and the goal is to have $150,000 in stock by August of the year 2017.

**Transactions in progress:

04/22/98: Sent $30 to buy more INTC.
04/22/98: Sent $70 to buy more JNJ.